SECURITIES
Security or securities is to mobilize long term funds.
the corporate are issuing various securities in the
capital market.
Generally the term securities include shares,
Debentures and Bonds.
According to the Securities Contracts (Regulation) Act
1956, Securities include shares, bonds, debentures or
other marketable securities of any company or
government.
SHARES
EQUITY SHARES
Equity shares commonly referred to as ordinary share
also represents the form of fractional ownership in
which a share holder, as a fractional owner, undertakes
the maximum entrepreneurial risk associated with the
business.
The equity share holders are members of the company
and having voting rights.
A company may issue shares with differential rights as
to voting, payment of dividend etc
Preference shares
Owners of this kind of shares are entitled to a fixed
dividend can be paid in respect of equity shares. They
also enjoy priority over the equity share holders in
payment of surplus.
But in the event of liquidation their claims rank below
the claims of company’s creditors,
bondholders/debenture holders
Kinds of Preference shares
Cumulative preference shares
Non-cumulative preference shares
Convertible preference shares
Redeemable preference shares
Irredeemable preference shares
Participating preference share
Non Participating preference shares
Cumulative preference shares
In this case the dividend payable every year becomes
first claim while declaring dividend by the company.
In this case the company does not have adequate profit
or some reason, the company does not want to pay
preference dividend, it gets accumulated for being
paid subsequently.
Such dividends will be carry forward and paid out of
the profits in subsequent years, before payment of
equity dividend.
Non Cumulative Preference Shares
In the case of these shares, dividend does not
accumulate. If there are no profits or the profits are in
adequate in any year, the shares are not entitled for the
dividend for that year.
Convertible Preference Shares
If the terms of issue of preference shares includes a
right for converting them in to equity shares at the end
of a specified period, they are called Convertible
Preference shares.
In the absence of the conditions or right, the
preference shares are not converted in to equity shares
to become eligible for various rights such as : voting,
higher dividend, bonus issue etc as in the case of
equity shares.
Participating Preference Shares
Preference share holders are not entitled to any
dividend more than what has been indicated as a part
of the terms of issue, even in a year which the company
has made huge profits.
Subject to the provisions in terms of issue, these shares
can be entitled to participate in the surplus profits left.
After the payment of dividend to the preference and
equity share holders to the extent provided there in.
Subject to provisions in the terms of such preference
shares can be entitled to bonus shares.
Non Participating Preference
shares
Unless the terms of issue indicate specifically
otherwise, all preference shares are to be regarded as
non participating preference shares.
Debentures
Section 2 (12) of the Companies Act, 1956 defines the
Debenture as follows:
Debenture includes debenture stock, bonds and any
other securities of a company, whether constituting a
charge on the assets of the company or not.
Debenture is a document evidencing a debt or
acknowledging it and any document which fulfils either
of these conditions is a debenture.
Kinds of Debentures
1. Unsecured Debenture or Naked Debenture
2. Secured Debenture
3. Redeemable Debentures
4. Perpetual Debentures
5. Bearer Debentures
6. Registered Debentures
Based on Convertibility, Debentures can be classified under three
categories:
1. Fully Convertible Debentures
2. Non Convertible Debentures
3. Partly Convertible Debentures
Unsecured Debentures
These kinds of Debentures do not carry any charge on
the assets of the company. Such debenture holders do
not have the right to attach particular property by way
of security as to repayment of principal or interest.
Secured Debentures
Debentures that are secured by a mortgage of the
whole or part of the assets of the company are called
Mortgage debentures or secured debentures
The mortgage may be one duly registered in the formal
way or one which is secured by the deposit of title
deeds in case of urgency.
Redeemable Debentures
Debentures that are redeemable on expiry of certain
period are called redeemable debentures. Such
debentures after redemption can be reissued in
accordance with the provisions of the Act.
Perpetual Debentures
if the debentures are issued subject to redemption on
the happening of specified events which may not
happen for an indefinite period. So they are called
Perpetual debentures
E.g. for indefinite period: Winding up,
Bearer Debentures
Such debentures are payable to bearer and the
transferable by mere delivery. The name of the
debenture holder is not registered in the books of the
company, but the holder is entitled to claim interest
and principal as and when due.
A Bonafide transferee for value is not affected by the
defect in the title of the transferor.
Registered Debentures
Such debentures are payable to the registered holders
whose name appears on the debenture
certificate/letter of allotment and is registered on the
companies register of debenture holders maintained
as per Provisions of the Act.
Portfolio
A collection of investment hold by the
same individual is known to be Portfolio.